Question

Variable Costing Income Statement

On July 31, 2016, the end of the first month of operations, Holton Company prepared the following income statement, based on the absorption costing concept:

Sales (18,000 units)					$972,000
Cost of goods sold:
	Cost of goods manufactured		$748,000
	Less ending inventory (4,000 units)		136,000
	Cost of goods sold				612,000
Gross profit					$360,000
Selling and administrative expenses					68,000
Income from operations					$292,000

a. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $44,000 and the variable selling and administrative expenses were $31,000. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar.

Holton Company
Income Statement-Variable Costing
For the Month Ended July 31, 2016
Sales		$
Variable cost of goods sold:
Variable cost of goods manufactured	$
Less ending inventory
Variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed manufacturing costs	$
Fixed selling and administrative expenses
Income from operations		$

b. Reconcile the absorption costing income from operations of $292,000 with the variable costing income from operations determined in (a).

Reconciliation of Absorption and Variable Costing Income
Absorption costing income from operations	$
Variable costing income from operations
Difference	$

Answer 1

a. Prepare a variable costing income statement

Sales		972000
Variable cost of goods sold:
Variable cost of goods manufactured	704000
Less ending inventory	(128000)
Variable cost of goods sold		576000
Manufacturing margin		396000
Variable selling and administrative expenses		31000
Contribution margin		365000
Fixed costs :
Fixed manufacturing costs	44000
Fixed selling and administrative expenses	37000	81000
Net operating income		284000

b. Reconcile the absorption costing income from operations of $292,000 with the variable costing income from operations determined in (a).

Reconciliation of Absorption and Variable Costing Income
Absorption costing income from operations	292000
Variable costing income from operations	284000
Difference	8000
Fixed manufacturing overhead per unit (44000/22000)	2 per unit
ENding inventory	4000
Fixed manufacturing overhead defferred in ending inventory	8000